Facebook Implodes After Revenue, User Growth Disappoint

Facebook shares were bid all day ahead of earnings, closing at a record high – up over 35% since the last earnings on April 25th – despite warnings of higher costs, lower user engagement, and investment in “time well spent” — a term invented by a former Google employee to tackle the problems of technology addiction.

That was the good news.

The bad news is that despite beating on earnings (Facebook 2Q EPS $1.74, Est. $1.72), Facebook shares are crashing as much as 10% after hours following a miss on revenues (the first for the company since 2015), MAUs, and DAUs…

  • Facebook 2Q Rev. $13.23B, Est. $13.33B (+42% YoY)
  • MAU 2.23BN, EXP 2.25BN
  • DAU 1.47BN, Exp. 1.48BN

Notably Q2 2018 Revenues for US are below Q4 2017 revenues…

Facebook Implodes After Revenue, User Growth Disappoint

US MAUs were unchanged but EU MAUs fell from 377mm to 376mm

Facebook Implodes After Revenue, User Growth Disappoint

This is the weakest MAU growth on record..

Facebook Implodes After Revenue, User Growth Disappoint

Under the hood, US DAUs were unchanged but EU DAUs fell from 282mm to 279m…

Facebook Implodes After Revenue, User Growth Disappoint

“The core Facebook platform is declining,” said Brian Wieser, an analyst at Pivotal Research Group.

FB shares are down around 10% after-hours…

Facebook Implodes After Revenue, User Growth Disappoint

The size of the drop likely reflects the fact that this is a rare occurrence for a company that has consistently beat analyst and investor expectations.

Other details include:

Mobile advertising revenue – Mobile advertising revenue represented approximately 91% of advertising revenue for the second quarter of 2018, up from approximately 87% of advertising revenue in the second quarter of 2017.

Capital expenditures – Capital expenditures for the second quarter of 2018 were $3.46 billion.
Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $42.31 billion at the end of the second quarter of 2018.

Facebook Implodes After Revenue, User Growth Disappoint

Headcount – Headcount was 30,275 as of June 30, 2018, an increase of 47% year-over-year.

A massive rise in headcount appears to confirm that analysts dramatically underestimated the impact of Facebook’s scandals on user engagement. Who could have guessed – an army of free speech censors and the exposure of various privacy invasions may have spooked more than a handful of potential users.

All of which meant that operating margins also declined to 44 percent from 47 percent a year earlier. Facebook is feeling the pressure from all of its expenditures on content moderation, Facebook Watch, and other experiments.

Facebook Implodes After Revenue, User Growth Disappoint

Finally, this is what happens when the government tells you to hire more people to check the millions of posts published daily on FB: free cash flow plummets:

Facebook Implodes After Revenue, User Growth Disappoint

From CEO Zuckerberg in the press release:

“Our community and business continue to grow quickly,” Zuckerberg said.

“We are committed to investing to keep people safe and secure, and to keep building meaningful new ways to help people connect.”

Facebook hasn’t missed top line estimates since 2015…so it’s different this time? Or BTFD?

Facebook’s crashing share price in extended trading has wiped $6.7 billion from Zuckerberg’s net worth as of 4:10 p.m. in New York

The rest of FANGs are under modest pressure:

Facebook Implodes After Revenue, User Growth Disappoint

And Nasdaq futures tumbled…

Facebook Implodes After Revenue, User Growth Disappoint

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Full Facebook Q2 2018 Earnings Presentation:

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Author: HEDGE

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